Retiring Macroeconomic Theory

Dear Professor Diamond

Thank you lot for sending your paper ‘National Debt inwards a Neoclassical Growth Model’ to the American Economic Review. The newspaper has at 1 time been read past times 2 referees, as well as I’m afraid the tidings is non good.

Referee H5N1 raises a primal objection. Your model has a 2 menses structure, where agents travel inwards the get-go menses but utilisation non travel inwards the second. This supposition is exactly stated inwards 1 paragraph on your page 2, but is non justified inwards whatever way. In that feel it appears exclusively advertizement hoc. Furthermore, equally referee H5N1 stresses, it appears to contradict (is internally inconsistent with) around other primal part of you lot model, which is that agents campaign to polish consumption over time. The referee is quite happy amongst that assumption, equally it clearly comes from criterion postulates virtually the utility of the consumption of goods. Yet why should these postulates non too utilise to the consumption of leisure? As the referee points out, if agents tried to polish leisure inwards the same agency equally they smoothed consumption, at that topographic point would non hold upwards whatever ‘retirement’. As this describe organisation strikes at the oculus of your model, it is troubling.

Referee B raised rather dissimilar issues. They pointed out that the model implies a constant involvement charge per unit of measurement that is only a business office of the population increment rate. The model thus makes a clear prediction, but equally the referee points out involvement rates convey fallen inwards this province over the terminal 2 decades, without whatever matching declines inwards the population increment rate. So the model has been clearly falsified past times events, as well as thus cannot hold upwards the footing of whatever meaningful word of the behave on of national debt. The referee is too concerned that you lot failed to locate your analysis inside an ontological word of the opened upwards rather than unopen nature of the social realm, which makes your deductivist as well as formalist reasoning virtually socially constructed variables problematic, to tell the least.

I am thus rattling sad to inform you lot that nosotros volition hold upwards unable to set out your paper. Referee H5N1 did brand a number of helpful suggestions virtually how ‘retirement’ could hold upwards microfounded, as well as I am certain you lot volition notice the extensive reading listing referee B provided on economical methodology helpful inwards whatever futurity work. 

My apologies to Nick Rowe, whose post gave me the idea. I truly holler back quest the inquiry why nosotros convey retirement is revealing, but writing the higher upwards was easier than attempting an answer. (And I too holler back economical methodology is important!)